Will Valeant Pharmaceuticals Intl Inc (VRX) Bulls Keep the Faith?

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is sliding in spite of of reiterated earnings guidance and plans to file its quarterly report by June 10, and VRX option buyers remain bullish

by Kirra Fedyszyn

Published on May 9, 2016 at 12:09 PM
Updated on Jun 24, 2020 at 10:16 AM

Drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is 1.9% lower at $29.33, after an article in Barron's over the weekend suggested the stock may still be overpriced (subscription required). But the company is trying to win over traders with a piece of good news today, announcing that it will file its first-quarter earnings report by June 10 -- far ahead of the July 31 deadline -- and that subsequent quarterly reports are expected to be on time. Valeant also reaffirmed guidance for its first quarter, saying it expects adjusted earnings to equal $1.30 to $1.55 per share -- higher than analysts' estimates. But while VRX stock has been stair-stepping lower over the past year, seemingly bullish option buying has picked up steam.

Specifically, the equity's 10-day call/put volume ratio of 2.56 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows more than 2.5 VRX calls have been bought to open for each put over the last two weeks. Moreover, this ratio sits high than 84% of all readings taken in the last 12 months. In other words, option traders have bought to open calls over puts at a much faster-than-usual clip lately.

Echoing this sentiment is VRX's Schaeffer's put/call open interest ratio (SOIR) of 1.00 -- lower than 83% of the past year's readings. That means traders have been more call-skewed than usual among options expiring within the next three months. An exodus of option bulls could translate into headwinds for VRX.

However, a possible explanation for some of the recent call buying could lie outside of the options pits. Short interest on the security surged higher during the two most recent reporting periods, suggesting some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to hedging. Still, a relatively moderate 7% of VRX's available float is wrapped up in short interest, and at the stock's average daily volume, it would take only one half of a session to cover all these bearish bets.

The brokerage bunch has had little love for VRX lately, with 11 of the 16 analysts rating the shares a "hold" or "strong sell." But the average 12-month price target still sits at $62.59 -- a premium of more than 100% over VRX's current value. A flood of price-target cuts could exacerbate selling pressure on VRX.

On the technical front, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has left a lot of be desired. The shares have given up nearly 87% year-over-year, and have been running into trouble at the $36 level since their mid-March bear gap. The stock's 40-day moving average has also been a roadblock for VRX's advances in 2016. In fact, the equity has not closed above this trendline in more than three months.

VRX Daily Chart May 9


Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


A Schaeffer's 39th Anniversary Exclusive!

8 Top Stock Picks for 2020

Access your FREE insider report before it's too late!


  
 
 

Partnercenter